MONEY BY COMPANY FOR PURCHASE OF ITS OWN SHARES

According to Section 67 of the Companies Act, 2013, No public company shall give any financial assistance for the purpose of or in connection with a purchase or subscription made. This restriction on financial assistance shall not apply to the purchase of or subscription for the shares held by trustees for the benefit of the employees or such shares held by the employees of the company. The Provision has been discussed earlier here. The Rule 16 of the Companies (Share Capital and Debentures) Rules 2014 makes detailed provision for this purpose.

Conditions:

The company shall not make a provision of money for the purchase of, or subscription for, shares in the company or its holding company, for the purchase of, or the subscription for, the shares by trustees is for the shares to be held by or for the benefit of the employees of the company, unless it complies with the following conditions, namely:-

(a) The scheme of provision of money for purchase of or subscription for the shares is approved by the members by passing special resolution in a general meeting;

(b) Such purchase of shares shall be made only through a recognized stock exchange in case the shares of the company are listed and not by way of private offers or arrangements;

(c) Where shares of a company are not listed on a recognized stock exchange, the valuation at which shares are to be purchased shall be made by a registered valuer;

(d) The value of shares to be purchased or subscribed in the aggregate together with the money provided by the company shall not exceed five percent of the aggregate of paid up capital and free reserves of the company;

Explanatory Statement:

The explanatory statement to be annexed to the notice of the general meeting to be convened pursuant to section 102 shall, in addition to the particulars mentioned in sub-rule (1) of rule 18, contain the following particulars, namely:-

(a) The class of employees for whose benefit the scheme is being implemented and money is being provided for purchase of or subscription to shares;

(b) The particulars of the trustee or employees in whose favor such shares are to be registered;

(c) The particulars of trust and name, address, occupation and nationality of trustees and their relationship with the promoters, directors or key managerial personnel, if any;

(d) The any interest of key managerial personnel, directors or promoters in such scheme or trust and effect thereof;

(e) The detailed particulars of benefits which will accrue to the employees from the implementation of the scheme;

(f) The details about who would exercise and how the voting rights in respect of the shares to be purchased or subscribed under the scheme would be exercised;

Trustee of Employee Trust:

A person shall not be appointed as a trustee to hold such shares, if he-

(a) is a director, key managerial personnel or promoter of the company or its holding, subsidiary or associate company or any relative of such director, key managerial personnel or promoter; or

(b) beneficially holds ten percent or more of the paid-up share capital of the company.

Voting Pattern of Employees:

Where the voting rights are not exercised directly by the employees in respect of shares to which the scheme relates, the Board of Directors shall, inter alia, disclose in the Board’s report for the relevant financial year the following details, namely:-

(a) the names of the employees who have not exercised the voting rights directly;

(b) the reasons for not voting directly;

(c) the name of the person who is exercising such voting rights;

(d) the number of shares held by or in favour of, such employees and the percentage of such shares to the total paid up share capital of the company;

(e) the date of the general meeting in which such voting power was exercised;

(f) the resolutions on which votes have been cast by persons holding such voting power;

(g) the percentage of such voting power to the total voting power on each resolution;

(h) whether the votes were cast in favour of or against the resolution.

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Writer of this blog, Aishwarya Mohan Gahrana is Practicing Company Secretary and Insolvency Professional working with M/s Aishwarya M Gahrana & Associates, a New Delhi based peer reviewed firm of company secretaries having pan India presence through friends and associates. This blog is a knowledge sharing initiative. Views expressed here is of writer; not of the organization(s) he is working with.